I welcome my hon. Friend the Minister to his new responsibilities. I realise that, having been in office for only a few days, he will have to stick closely to his script, but I hope that when he has had a chance to go away and reflect on the arguments advanced this evening, he will realise the sense in what I am saying and take whatever action is necessary.

At the outset, let me acknowledge that the Government have greatly increased the funding available from the science and innovation budget for high-quality research; last year it amounted to £1.5 billion, and it is due to increase to £1.9 billion by 2010-11. That is to be welcomed. The problem is that most of it goes to a small number of institutions, with the majority receiving relatively little. While this is good news for the universities that receive the bulk of the research funding, it has a negative impact on the research infrastructure of universities such as the one I represent—Sunderland. It is also, I submit, not in the national interest.

As the Minister will know, research funds are allocated by the inelegantly named HEFCE—the Higher Education Funding Council for England. It takes the form of an annual allocation payable over a five or six-year period, according to priorities laid down by the Government. The last allocation was in 2002, when it was decreed that only excellent research of international significance should qualify for public funding. The result was that just 19 universities received 76 per cent. of the available funding. Newcastle, for example, received £33 million, while Sunderland got just £1 million—and that despite the fact that Sunderland was rated in 2001, by The Times, as the

“best new university for research”.

Were the same criteria to be applied this time around, the result, inevitably, would be that the same universities would benefit and that the research capacity of other universities would continue to wither.

I should make it clear that this is not a plea for a lowering of standards. Everyone accepts that it would make no sense to spread resources so widely that standards become diluted, and that only research of the highest standard and relevance should be funded. However, we do not accept that excellence is confined to such a relative handful of universities, or that little or no account should be taken of research of national significance.

If current policy is continued, we shall inevitably see a widening gap between the haves and the have-nots. The best and brightest graduates and academics will drift away from the four fifths of universities at the lower end of the funding table, and the capacity of those universities to offer postgraduate courses for domestic or international students will continue to diminish. Some of our best brains will have no chance to fulfil their true potential, and our economy may suffer as a result.

To give an example, Chris Bishop, the former professor of computing at Aston university, went on to head the Isaac Newton Institute for Mathematical Sciences at Cambridge and is now deputy director of Microsoft Research. I wonder whether he would have been able to make that leap had Aston been starved of research funds, as Sunderland has.

It is a fact not generally recognised that British companies prefer to do business with a local university. The Lambert review of collaboration between business and universities, prepared for the Treasury in December 2003, stated that

“firms with local markets chose to work with a local university in almost 90 per cent. of their collaborations.”

That is certainly the case in Sunderland, where the university has enjoyed a close partnership with Nissan. Indeed, it is arguable that the partnership between Nissan and the computing and technology department of Sunderland university has helped Nissan to achieve cost reductions that have kept the company in the UK. It is one of the largest manufacturing companies in the country, so keeping it here is surely in the national interest. Yet under the criteria currently applied, such a collaboration has not qualified for public research funding since 2001, even though it has been assessed as nationally excellent.

As the Minister may know, the economy of Sunderland and the north-east has undergone dramatic changes in the past 15 years. A huge swathe of our traditional industry—mining, shipbuilding and engineering—has been swept away by the remorseless onslaught of the global market. We have had to reinvent ourselves, and we have done so with some success. Besides attracting Nissan and its subsidiaries, Sunderland is promoting itself as a centre for software businesses. The university, along with local companies such as the Leighton Group, is playing an important part in that with nationally excellent and internationally recognised research in software and digital technology. However, under the current rules, little or none of that research, which is so important to the local, regional and national economy, attracts public funding. That does not make sense.

It is a matter of record that universities that do not qualify for significant public funding have a much better record of leveraging in funds from industry and elsewhere than those that do qualify. On average, Russell group universities, which receive the bulk of the core public research funding, attract less external funding than they receive from the public purse, whereas Sunderland, for example, has attracted more than four times as much funding from local industry and elsewhere than it has received in core public funding. The weakness of having to fund research on an ad hoc basis, however, is that the funds are not dependable and predictable in the same way as public funds allocated on a stable basis over a five or six-year period.

I emphasise that I am not making a plea for a lowering of standards or for tearing up the rulebook and starting again. I merely request a tweaking of the criteria, to permit perhaps 10 per cent. of the research and innovation budget to be spent in universities that specialise in research of national, as opposed to international, significance.

I congratulate the hon. Gentleman on his remarks, because I am 100 per cent. behind him. Many of my constituents attend the university of Northampton, which would like to access this quality-related funding. To many of my constituents it would seem absurd that 76 per cent. of this budget should go to just 15 per cent. of the universities. The modest proposal that he is making would mean £5 million or £10 million a year for many more universities, which would make a huge difference to their budgets.

I am grateful for the hon. Gentleman’s support. I have referred to the university in Sunderland, the city that I represent, but it is undoubtedly true that many of the newer universities would benefit from such a measure and that they should do so. Were the Government to allow perhaps 10 per cent. of the research and innovation budget to be spent in universities that specialise in research of national significance, the benefit to the UK would be disproportionate. Such an approach would allow many more universities to create and maintain strong research infrastructure and to respond to newly emerging markets, and that could only be to the lasting benefit of the economy as a whole.

Finally, I hope the Minister will not tell me that it is beyond his power to do any of this, because although final decisions are for the funding councils, the priorities and criteria are a matter for the Government. The allocation for the next five years is due to be announced in January, so time is short. I hope that he will take action as soon as he returns to his Department.

I am grateful to my hon. Friend the Member for Sunderland, South (Mr. Mullin) for raising what is obviously a very important issue. I know that he has worked closely with the university of Sunderland for many years. I hope he is aware that in my previous post as Skills Minister, I had occasion to visit the north-east, spending time in the Sunderland region. I know of the exemplary work being done in further and higher education in that region. I am also aware that maintaining links with industry has been key to some of the successful regeneration in that area. I very much respect the manner in which he made his remarks and the urgency with which he considers this issue.

The university of Sunderland undertakes innovative research in a variety of subjects. I was particularly interested to learn that its scientists have recently developed a hydrogen-powered car, in collaboration with Nissan—that is clearly a huge step towards tackling climate change. That product could be experienced by people not only in Britain but all over the world, and it results from the research at that institution.

A modern knowledge economy needs a thriving research base, and the university sector is a key part of that. The Government invest in university research through the dual support system. My hon. Friend mentioned the Higher Education Funding Council for England funding of £1.5 billion rising to £1.9 billion, in addition to which sizeable funding is provided through the research councils. We have been able to double that in real terms from £1.3 billion in 1997 to £3.4 billion in 2007-8. By the end of this spending review period, my Department’s funding of research through the HEFCE and the research councils will reach almost £6 billion per annum, most of which will go to our universities.

Our investment in research feeds through into improvements in the quality of life and the economy in a range of ways: it helps companies to develop new products and services; it creates new businesses; and it attracts research and development investment from global business. Research also helps to improve our public services—we need only consider the benefits in terms of health care and our beginning to understand the vexed issue of climate change. I might say, too, that policy makers can also benefit from working with that research base. Finally, of course, the process of undertaking research helps by developing highly skilled people who can enter the marketplace and work in it.

At the end of my hon. Friend’s speech, I noted a request for 10 per cent. of the quality-related research funding to be top-sliced and distributed differently. Even though I have been in post for only a week, I have been an active Minister and I have had dinner with the Million+ group, of which the universities of both Sunderland and Northampton are a part. The issues were put forcefully to me just a few nights ago.

My hon. Friend will understand that this country has a diverse range of universities. In my conversations with Universities UK, the Russell group of universities and the 1994 group of universities, I have heard a range of views. The idea proposed by my hon. Friend is one of a number in relation to research funding that have been suggested by people in the university sector.

I respect the way my hon. Friend felt able to support the principle that investment in research is built on the key plank of focusing that investment on excellent support. The 10-year science and innovation framework, which was published in 2004, emphasised two important objectives: the need for world-class research at the UK’s strongest centres of excellence and the need for sustainable and financially robust universities and public laboratories across the UK.

The difficulty is with the definition. As I understand it, the research favoured at the moment is classed as internationally significant, but I was talking about trying to widen that definition slightly to include some research of national significance. I gave the example of the fact that the collaboration between the university of Sunderland and Nissan had helped to keep that company in this country. As it is one of the largest manufacturing companies in the country, it must be in the national interest to go down that road.

I was coming to that point. I think my hon. Friend’s example showed national excellence and, as a consequence, international excellence. Nissan, of course, is a global company and we are living in a global world. In restating the principle, I simply say that we should fund excellence. Notwithstanding the difficult global financial times that we are entering, as the fifth richest economy in the world we must look to fund world-class excellence. The range of universities receiving funding covers a broad sweep of our university base, and all that money is funding excellent research, wherever it is in the country and whatever diversity is offered by a given university.

Let me return to the commitment that we made in the science and innovation framework, which was:

“UK research funding from Research Councils and HE funding bodies will continue to be driven by excellence wherever that may be found.”

That was the stated principle, and I hope it goes to the heart of what my hon. Friend was saying. The Secretary of State has restated our commitment to the very best research and I am happy to restate that position now. Within the framework, Government support has helped the UK research base to sustain an excellent performance against strong global competition.

The UK is second only to the US in global scientific excellence. With 1 per cent. of the world’s population, we carry out 4.5 per cent. of the world’s research and claim 8 per cent. of scientific publications. Our science is the most productive and efficient in the G8.

Research excellence is widely spread. My hon. Friend referred to the 2001 research assessment exercise, in which 75 higher education institutions across England with at least one department rated 5 or 5* took part. Institutions with several excellent departments receive correspondingly greater allocations.

I am of course aware of the concerns that fundamental or blue-skies research, such as investigating the origins of the universe, is favoured in an unhealthy way over research that is done jointly with business or with a clear application in mind, and the HEFCE and the Department share those concerns. A new research assessment exercise is under way, with the results due in December, and it will form the basis of the allocations for the next academic year. I know that the HEFCE has made a number of changes to improve the exercise and give it the clear goal of properly valuing excellence across a range of research types. That will include applied research and research with business, wherever that is conducted.

My hon. Friend is rightly proud of the work that his university does with business, and the Government very strongly support collaboration between universities and business. With support from the Government, the higher education community has transformed its relations with business over the past decade. Different businesses want different things from higher education, but some are motivated to access the best research in the world, wherever that may be. The UK has reaped the rewards, through inward research and development investment by international firms.

My hon. Friend mentioned Microsoft, which has made a major research and development investment. I could also mention Boeing’s investment in Sheffield’s advanced manufacturing research centre, or Hewlett Packard’s research at Bristol. There are many more examples but I recognise that, as my hon. Friend emphasised in his contribution, many firms will want to work with a local partner that can help to solve a local or specific problem that may well be of national interest.

I know that the university of Hertfordshire has taken an extra step and merged with its local Business Link organisation to support businesses further. One benefit of our higher education system is its diversity, which allows different institutions to play to their strengths. That understanding of diversity and range has really emerged only over the past 10 years.

Ensuring that we have an excellent research base is the starting point for encouraging work with business, but it is by no means the end of the process. Recently, the HEFCE has started to allocate part of the quality research funding to reward research income from businesses, while the higher education innovation fund invests in knowledge transfer capability between higher education and business. That fund helps institutions to attract further funds from businesses and other users, and it also helps to support collaborative and contract research as well as consultancy and training.

The innovation fund is deliberately spread more widely than research funding, and it is important to note that Sunderland university will receive more than £4.3 million from it over the three years to financial year 2010. Many of the organisations receiving the maximum allocation under that fund are not among the major research institutions.

We have also created the new technology strategy board, one of whose key aims is to help businesses to access the best research base. Of course, it is early days, but as a result of setting up the board, we are doubling the number of knowledge transfer partnerships. Those programmes have been running for many years, and they are a highly respected way for universities to work with businesses. Again, many of the institutions that do well in attracting those funds are not the biggest research institutions.

We are also working with the regional development agencies to introduce innovation vouchers to encourage small and medium-sized businesses to work with a range of universities. All that is bringing great rewards and inward investment. There has been a huge increase in interaction with businesses, public services and others, and the latest higher education business and community interaction survey shows that the income going to universities from users has risen to almost £2.6 billion per annum.

The importance of universities in the 21st century was further recognised when the Department for Innovation, Universities and Skills was created by the Prime Minister in June 2007 to ensure that the issues that my hon. Friend raised were on the table, and that the dual-purpose nature of our funding base was brought together. The importance of that mission is made greater still by current economic circumstances. Indeed, when he created the National Economic Council earlier this month, the Prime Minister stressed the need to continue to equip the economy with the right investment in skills, in science and technology, and in our infrastructure.

In partnership with the community, the Government have transformed the research base. In these tougher economic times, I hope to get us to a point at which local innovations for local businesses, and other innovations, are world-class, follow an international template, and provide opportunity for the country. Indeed, Sunderland university is one of the institutions doing all those things. I hope it will continue to provide jobs, opportunities and innovation for local people in future. The new research assessment exercise will runs its course, with the changes that I have outlined, and both the Government and the HEFCE will be aware of the points that my hon. Friend raised.

I very much welcome what the Minister says. May I pin him down on one point? Will he confirm that I am right in thinking that although Ministers obviously do not have a say in the day-to-day allocation of funds, they do set the priorities and the criteria? Secondly, will he confirm that he will be talking to the HEFCE about its priorities for the next funding round?

I can confirm both those things. My predecessor, my hon. Friend the Member for Harlow (Bill Rammell), was in dialogue with the HEFCE about the new arrangements for the research assessment exercise. My hon. Friend is right to say that the HEFCE will come back to the Department towards the end of the year. Given the importance of our universities, individual allocations must rightly be independent of Ministers. Ministers cannot cherry-pick for particular universities, and we must absolutely protect the integrity of that approach. However, he is right to say that the framework for that research must be set by the Government and the HEFCE, working in co-operation.

When the Minister next talks to the HEFCE, will he put to it my suggestion that 10 per cent. of funding—we can argue about what the percentage should be—be put into quality, or excellent, research, of national, as opposed to international, significance?

I repeat that the HEFCE is well aware of those representations that have been made, especially by the Million+ group of universities, and by other representative groups. I understand where my hon. Friend is coming from, and I also understand where the hon. Member for Kettering (Mr. Hollobone) is coming from. The HEFCE is well aware of the concerns, and the conversation continues. The importance of our research base and the work done in our universities is something that I am very pleased to emphasise this evening.

Question put and agreed to.

Adjourned accordingly at half-past Seven o’clock.